If your real disposable income goes up by $200 per week, and your real consumption spending goes up by $160 per week, you have an marginal propensity to save of
A) 0.2.
B) 0.8.
C) 1.2.
D) 1.0.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the proportion of any additional income that is saved rather than spent on consumption. It can be calculated as the change in saving divided by the change in income.

In this case, the change in income is $200, and the change in consumption is $160. Therefore, the change in saving is $40 ($200 - $160).

MPS = change in saving / change in income 
MPS = $40 / $200 
MPS = 0.2

This means that for every additional dollar of income, this person saves $0.20 and spends $0.80 on consumption.

If Your Real Disposable Income Goes Up by $200 Per